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Class Actions: What to Watch for in 2018

Companies have been trying to find ways to curtail class actions for years to limit
their own liability.

While Justice Antonin Scalia was alive, defendants had an ally on the U.S. Supreme
Court, as evidenced by a series of pro-defendant class action decisions.

But since Scalia’s death two years ago, the Supreme Court seems to have lost its appetite
for limiting the class device.

Spokeo, Inc. v. Robins gave defendants fodder for challenging class actions from the standing stage. But
results have been mixed and plaintiffs are finding ways around it.

Last term the court gave defendants another potential tool for curtailing class actions
from the start—
Bristol-Myers Squibb Co. v. Superior Court, a jurisdictional ruling.

This article discusses the fallout from these cases and other trends that class action
practitioners should have their eye on in 2018.

Game Over for Plaintiffs’ Tactic

Class actions haven’t seen a resurgence of interest at the Supreme Court since Justice
Neil Gorsuch’s confirmation. Some court watchers speculated that Gorsuch would continue
the anti-class action trend established by his predecessor Scalia, but so far that
hasn’t borne out. Gorsuch doesn’t have much of a record on class actions from his
time on the Tenth Circuit, so there isn’t a lot to predict how he’ll treat such suits
in the future.

The court heard only one case that turned on class action procedure last term,
Microsoft Corp. v. Baker. The underlying suit involved Xbox consoles that allegedly scratched game discs.
But the Supreme Court wasn’t looking at the merits. It was looking at a plaintiffs’
tactic for getting appellate review after class certification was denied.

After the Ninth Circuit didn’t accept their interlocutory appeal under Federal Rule
of Civil Procedure 23(f), the Xbox owners voluntarily dismissed their whole suit.
They called this dismissal a final judgment to allow them to expedite appeal of the
certification denial.

The Supreme Court wasn’t impressed with the strategy, which it viewed as a way to
get a second bite at the apple. Justice Ruth Bader Ginsburg wrote the opinion in favor
of the defendants. Although she usually sides with plaintiffs, she’s a former civil
procedure professor who doesn’t look favorably on gaming the system.

This outcome wasn’t too surprising, and hasn’t much changed the class action landscape
since it came out last June. Gorsuch wasn’t on the court when the case was argued
so he didn’t participate in the decision.

New Tool for Defendants

But Gorsuch was on the Supreme Court, and in the majority, for the one case from last
term that may have the biggest effect on class action practice. It wasn’t a class
action at all, however. That’s
Bristol-Myers Squibb Co. v. Superior Court where the court considered specific jurisdiction in a mass action involving injuries
from Bristol-Myers’ blood-thinner Plavix.

The question was whether non-Californians could combine their claims with those of
California residents in a California state court. Specific jurisdiction has to do
with whether the suit “arises from or is related to” the defendants’ activities in
the state.

The California courts found the plaintiffs had specific jurisdiction based on how
similar the residents’ and nonresidents’ claims were and the company’s contacts with
the state. Those contacts included drug research, but not research on Plavix specifically.

In June the Supreme Court ruled 8–1 that this version of specific jurisdiction was
“too relaxed.”

Companies have been quick to jump on this decision, filing motions to dismiss in large
multistate cases. They argue that it applies to class actions as well, foreclosing
all nationwide class actions except those filed in the defendant’s home state.

But plaintiffs’ attorneys say that
Bristol-Myers itself wasn’t a class action and wasn’t in federal court, and so only applies to
cases consolidated in state court.

Few rulings have come out from the district courts on whether the decision applies
to class actions, so the question is
far from settled.

Four of the courts that have considered the issue have held they don’t have jurisdiction
over claims of out-of-state plaintiffs: the Eastern District of Pennsylvania, the
Northern District of New York, the Eastern District of New York, and two cases from
the Northern District of Illinois.

Two have gone the opposite way, finding they can exercise jurisdiction over out of
state plaintiffs: the Northern District of California and the Eastern District of
Louisiana.

Defendants may want to be careful when deploying
Bristol-Myers to take down nationwide class actions.

Plaintiffs might give up and stop filing large class actions all together. But the
plaintiffs’ bar is adaptable, so
Bristol-Myers could mean defendants will have to face multiple, state-specific class actions over
the same claims, or more suits in the defendant’s home state.

That doesn’t do much to help with manageability or consistency, two goals often cited
by defendants.

Bristol-Myers application to class actions may make its way back up to the Supreme Court.

Tightening the Squeeze

A more recent decision out of the Ninth Circuit could add to the squeeze on nationwide
class actions.
In re Hyundai & Kia Fuel Econ. Litig.involves claims that Hyundai and Kia overstated the fuel efficiency of their cars.

At the end of January, the Ninth Circuit overturned approval of a $200 million deal,
citing concerns about whether the case should have been certified for settlement at
all.

The court said too many variations existed in the state consumer laws at issue and
therefore common issues didn’t predominate over individual issues—one of the requirements
for class certification.

Defendants say this ruling is nothing new. It’s just an application of the Supreme
Court’s 20-year-old decision in
Amchem Prods. Inc. v. Windsor, which stressed that predominance is just as important when certifying a class for
settlement as it is when certifying a class for trial. But courts since
Amchem haven’t really taken a hard line against multistate class settlements.

But the ruling could also add uncertainty and expense for defendants who want to settle.

Judge Sandra Ikuta wrote the decision. She was in the dissent when the full Ninth
Circuit heard
Dukes v. Wal-Mart Stores Inc. The Supreme Court later sided with her and reversed class certification in its blockbuster
employment law
decision.

But she generally takes positions contrary to her Ninth Circuit colleagues, and the
ruling made such bold statements on settlements, the case is likely to be reheard
en banc itself.

Struggling With
Spokeo

Before there was
Bristol-Myers there was
Spokeo, Inc. v. Robins. Courts continue to struggle with how much of an injury is needed to establish standing
in statutory cases since the Supreme Court’s decision in May 2016.

Spokeo Inc. scrapes the internet and aggregates information it finds about you. Thomas
Robins said the website posted inaccurate information about him, information that
incidentally improved his résumé.

He used this as a basis to file a class action under the Fair Credit Reporting Act,
which allows plaintiffs to seek statutory penalties of up to $1,000 per violation
when a credit agency posts inaccurate information. Spokeo argued his injuries were
just technical violations of the statute that didn’t cause him any real, identifiable
harm.

That decision came down a few months after Scalia died in February 2016. Perhaps to
avoid a 4–4 split, the court didn’t make any bright-line rules in its
Spokeo decision.

The issue is whether a bare statutory violation constitutes a concrete injury to give
a plaintiff standing to sue in federal court—and to bring a class action. The Supreme
Court said the Ninth Circuit wasn’t thorough enough when it analyzed whether the plaintiff’s
injury was both concrete and particular to him.

On second look, the Ninth Circuit said the plaintiff’s alleged injuries were sufficiently
concrete to sue. That wasn’t the outcome that defendant Spokeo wanted. The company
tried to convince the Supreme Court to look at the case again, but the court denied
certiorari Jan. 22.

There is another case waiting if the court decides it does want to further clarify
its standing requirements.

CareFirst, Inc. v. Attias will give the court the chance to look at how much harm is necessary in the data
breach context. That’s the main area of the law where this standing debate is coming
up right now. The court should decide whether to take on that petition after its Feb.
16 private conference.

No Clear Post-
Spokeo Guidance

The lower court decisions applying
Spokeo are a muddle. No clear circuit split exists because the cases have mainly come down
to the facts.

In the data breach context, many varying facts can determine whether a court finds
plaintiffs can sue. The first question is whether the existence of a data breach alone
creates standing. Some courts seem to be coming around to this idea that the risk
of data theft is enough harm.

Some courts say having your name and birthday stolen is enough to put you at risk,
but others say maybe the risk is only real if your credit card and Social Security
number are stolen.

Courts also disagree about whether it’s enough harm when the plaintiffs allege the
company just wasn’t careful enough with their data as less real risk of theft exists.
Or if plaintiffs allege hackers stole the data as presumably hackers only steal information
because they plan to use it later. The law is still unsettled, so there’s not great
guidance yet for parties dealing with data breach claims.

Outside of the data breach context, much variation exists based on the statute the
plaintiffs are suing under.

Defendants hoped that
Spokeo would kill the Telephone Consumer Protection Act, which provides $500 in statutory
penalties for every unsolicited robocall, text, or fax. But courts seem to agree that
the pain of receiving these messages is enough to clear the
Spokeo injury hurdle.

Suits alleging technical violations of some other statutes are having less success.
Courts are more skeptical of allowing claims to proceed under the Fair Credit Reporting
Act and the Fair Debt Collection Practices Act.

The courts still disagree about whether these violations rise to the level of harm
needed for
Spokeo standing, and decisions often turn on the facts of the cases.

To fight
Spokeo dismissal, plaintiffs are filing in state courts where they can argue the standing
threshold isn’t as stringent as in Article III federal courts.

Defendants tried a few times to remove these suits under the Class Action Fairness
Act and then dismiss them for lack of
Spokeo standing. But courts haven’t responded well to that tactic. One court even
ordered sanctions against a defendant who tried it.

Tolling for Subsequent Class Actions

There is one case involving a class action issue left for the Supreme Court to hear
this term.
China Agritech v. Resh is a securities class action. The Supreme Court has shown an appetite for nitpicky
cases that will only affect securities law. But this one is expected to have a wider
impact as the question raised is whether
American Pipe tolling should be extended to subsequent class actions.

Members are protected from having time run out on their individual claims until class
certification is denied.

Courts are divided on whether the statute of limitations is tolled only for individual
claims by plaintiffs who would have been members of the failed class action or also
for subsequent class actions.

The Sixth Circuit notably allowed a follow-on class action to
Dukes to proceed in
Phipps v. Wal-Mart Stores, Inc. The Supreme Court said in
Dukes that certification of a nationwide class of 1.5 million female employees wasn’t tenable.
After that decision, the Phipps plaintiffs sued on behalf of women in a smaller region.

The Sixth Circuit said the statute of limitations on their claims was tolled while
Dukes was pending, so the later class action was allowed to go forward. It is still pending
in the district court.

Companies worry that the costs of defending these piggyback class actions, stacked
one on top of the other will force them to settle claims they wouldn’t otherwise.
It seems likely the justices will be sympathetic to that concern when they hear oral
argument March 26.

Cy Pres’s Day at the Court?

Cy pres may finally get its day at the Supreme Court next term.

Cy pres in the class action context refers to distributing class settlement funds
in a way that indirectly benefits class members because it isn’t feasible to compensate
them directly. Usually it’s just a method for disposing of left over funds: when there’s
too little money to do another round of distributions to class members, the remainder
goes to charity.

Frequent class action objector Ted Frank of the Competitive Enterprise Institute Center
for Class Action Fairness filed a
certiorari petition in a privacy settlement with Google where all the money goes to cy pres.

The company settled allegations that it disclosed internet search terms to third-party
websites by agreeing to pay $8.5 million. The parties decided it wouldn’t be feasible
to distribute funds from the deal directly to the 129 million class members who would
receive only pennies apiece.

Instead, the parties agreed that $5.3M would go to six charities working on privacy
and internet policy, and class counsel would take home $3.2M. Frank says money should
go to class members first before parties fall back on giving funds to charity. He
also questions the choice of charities, several of which have ties to plaintiffs’
counsel.

The Supreme Court has been looking to review a cy pres-only settlement since 2013.
Then, Chief Justice John Roberts wrote a
statement to accompany a denial of certiorari in a Facebook privacy case saying the court may
need to clarify limits on cy-pres only settlements.

The response brief in the Google case is due in March. This could be the case that
gets cy pres before the court.

Arbitration Here to Stay

A few other trends seem to have fizzled recently.

In 2016, the tide was
turning on arbitration clauses. Agencies in the Obama administration were rolling out rules
to ban arbitration. Scalia was off the bench, Merrick Garland of the D.C. Circuit
had been nominated to replace him, and if Garland didn’t get confirmed, everyone was
looking to who Hillary Clinton would nominate.

But President Donald Trump’s win put the brakes on this anti-arbitration momentum.
Nearly all of the agency rules have been
overturned since he took office.

Most significant was the Consumer Financial Protection Bureau’s rule covering financial
products, which was overturned by Congress in October.

Arbitration seems to be here to stay, much to the chagrin of consumer and employee
advocates who have been fighting it for years.

There is also the trio of cases the Supreme Court heard the first day of the term.
The
cases ask whether the National Labor Relations Act invalidates class action waivers in
employment contracts.

As one would expect, the left-leaning justices came out strong in favor of workers
during oral argument. Justice Anthony Kennedy, who as usual is likely to be the deciding
vote, was hard to read. Gorsuch didn’t speak up during the argument, giving no indication
of how he might rule.

If the court comes down on the side of the workers, employers can expect a flood of
class actions to be filed as their claims are released from arbitration.

If the court sides with employers, more companies are likely to add class action waivers
to their employment contracts. Now about 55 percent of nonunion private sector employees
are bound by an arbitration agreement, according to one
study.

No More Ascertainability?

Another trend that was once big news in the class action world but seems to have fizzled
is ascertainability.

This is the debate over whether plaintiffs need to provide a reliable method for identifying
class members to get a class certified. Ascertainability comes up most often in small-dollar
consumer suits because people don’t generally keep the receipts they could use to
prove class membership.

The federal circuits were once split on whether ascertainability existed at all, and
if so how strict a standard to apply. But arguably the circuits’ approaches are coming
into harmony as the Third Circuit backed off its strict interpretation of the requirement.

That may be why the Supreme Court has passed up several opportunities to consider
ascertainability in recent years, even since Gorsuch joined the court.

But defendants keep trying to get the court to bite. A securities
class action against energy producer Petrobras would have given the court the chance to take it
up, but the parties reached a settlement at the beginning of January. That case is
off the table, at least for now.

Another ascertainability question has been raised in a TCPA case up on a
petition for review but the court won’t move on it for a few months.

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